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Risk on as vaccine hopes rise

GBP - British Pound

This morning has seen the pound push higher as risk on trade and the UK's proposed post-Brexit trade plan saw sterling well bid. After plummeting below 1.21 during Monday's Asian session as fears permeated the market about the breakdown in Brexit talks, GBP/USD has recovered and came close to cracking 1.23 earlier this morning as markets reacted well to positive reports re: Covid-19 vaccine development leading to a dollar sell off.

Further support was added to the pound with the the announcement of the UK government's "UK Global Tariff" which will replace tariffs determined by the EU when the UK exits its transition period at the end of the year. Under the system 60% of trade coming to the UK would be tariff free reducing around £30b of charges that are currently seen. The UK has one more round of talks to agree in principle a trade deal with the EU before a summit due at the end of June otherwise both sides will have to agree an extension to talks or walk their separate ways. Given the huge impact Covid-19 has had on the UK and Eurozone economies, its in both parties interests to come to an agreement.

Data-wise the first impact on the UK labour market from the coronavirus driven shutdown saw 856.5k sign-on for April, worse than than the 675k expected. The quarterly unemployment rate actually fell to 3.9% for Jan-March however we can expect that to rise rapidly over coming months.

The pound has slipped a touch from the peaks seen this morning with GBP/USD at 1.2240 and GBP/EUR just under the 1.12 handle.

Key Movers

Positive developments re: a vaccine against Covid-19 helped push equity markets higher in early trade this morning as US pharmaceutical company Moderna Inc reported successful early trials in creating an immune system response against the virus. A third round of trials is scheduled for July before the company can apply for a biological licence from the US Food and Drug Administration which is needed before mass production can begin. It should be noted that any vaccine being available before the end of the year is highly unlikely.

In Europe there was positive news as it was announced that France and Germany had agreed on a plan for a EUR500b fund to help the bloc's regions worst affected by the coronavirus outbreak. Crucially the money would be given as grants, not loans, which is a big change of stance from German Chancellor Angela Merkel who has always been reluctant to give away money. Throughout the Greek debt crisis any bailout money was as loans and had strict conditions applied to it.

Donald Trump yesterday confirmed he had been taking anti-malaria drug hydroxychloroquine for the past two weeks in an effort to stave off contracting Covid-19. In a stunning admission at a press conference at the end of a meeting with US business leaders the president confirmed he had been taking the drug for two weeks, despite no hard evidence that it can prevent against infection and could even lead to heart problems. After the announcement even US broadcaster Fox News, which traditionally favours the president advised against using it except for its specific use, preventing/combating malaria.

Today's big event is testimony from US Federal Reserve Chairman Jerome Powell before the US senate where he is again expected to demand more fiscal stimulus from the US government.

EUR/USD is up to 1.0930 and USD/JPY is up to 107.50

Expected Ranges

GBP/USD: 1.2180 - 1.23 ▲

GBP/EUR: 1.1160 - 1.1260 ▼

GBP/AUD: 1.86 - 1.8780 ▼

GBP/NZD: 2.0050 - 2.02 ▼

GBP/CAD: 1.6090 - 1.7120 ▼